hedge funds manipulate stock in secret, page-18

Hi Folks,

This notion of manipulation of shorts by hedge funds reminds me of a passage out of "Reminiscences of a Stock Operator" - tales from the legendary Jesse Livermore - the book is now over 80 years old. The following is a quote from the book:

"As I have said a thousand times, no manipulation can put stocks down and keep them down. There is nothing mysterious about this. The reason is plain to everybody who will take the trouble to think about it half a minute. Suppose an opertor raided a stock - that is, put the price down to a level below its real value - what would inevitably happen? Why the raider would at once be up against the best kind of inside buying. The people who know what a stock is worth will always buy it when it is selling at bargain prices. ... When people speak about raids the inference is that the raids are unjustified; almost criminal. But selling a stock down to a price much below what it is worth is mighty dangerous business. It is well to bear in mind that a raided stock that fails to rally is not getting much inside buying and where there is a raid - that is, unjustified short selling - there is usually apt to be inside buying; and when there is that, the price does not stay down. I should say that in ninety-nine cases out of a hundred so-called raids are really legitimate declines, accelerated at times but not primarily caused by the operations of a professional trader, however big a line he may be able to swing.

"The theory that most of the sudden declines or particular sharp breaks are the result of some plunger's operations probably was invented as an easy way of supplying reasons to those speculators who, being nothing but blind gamblers, will believe anything that is told them rather than do a little thinking."

(Edwin Lefevre, "Reminiscences of a Stock Operator", John Wiley and Sons, 1993. pp194-5. Originally published by George H. Doran and Company in 1923)

We live with a stock market which is a free market - subject to supply and demand. Pushing the price down of a stock (by whatever means) can only be possible as a result of the lack of buyers. Big smart operators with virtually unlimited resources relative to the average retail trader will return and push the price up when the fundamentals justify such action.

The methods used today may be somewhat more sophisticated than in 1923 - but the principles remain true.

Until some criminality can be proven (such as collusion) by hedge funds, one must consider the short sales as a legitimate reaction to fundamental concerns about the state of the market.

Cheers
Red